Cost plus pricing is the easiest method to explain and the easiest to get quietly wrong, because it depends entirely on a cost figure most companies have never calculated properly.
Cost plus pricing works out what something costs you and adds a margin. It is the default in trades, manufacturing, and most service businesses that quote per job, and it has two real virtues: the price is defensible to a customer, and it is almost impossible to sell below cost by accident — provided the cost figure is right.
That proviso is where the method fails. Companies that price cost-plus using direct costs only, ignoring overhead and their own time, are applying a healthy-looking margin to a figure that is not the cost. The margin then absorbs everything that was left out, and the business is busy and unprofitable at the same time.
Allocate overhead or the margin is not what you think. Add up your annual overhead, divide by the productive hours you actually sell in a year — not the hours in the year — and you have an overhead rate per hour. Most small companies discover their sellable hours are far fewer than assumed, which raises the overhead rate and explains where the margin has been going.
A cost of 100 with a 25% markup gives a price of 125, on which the margin is 20%. A cost of 100 with a 25% margin gives a price of about 133. Businesses that intend margin and apply markup undercharge by exactly that difference on every job, which compounds quietly across a year. Decide which one your rule uses, write it down, and build it into the template so nobody has to remember.
The cost side of this lives in Ettex Books: a chart of accounts structured the way accountants expect, so overheads are grouped the way you would allocate them; categories and auto-categorisation rules so recurring costs land consistently; attachments on any entry so a supplier invoice stays with the transaction; multi-currency with rate tracking for imported materials; instant search across all periods; and P&L and ledger export as PDF, CSV or XLS to feed the model. The model itself — cost build-up, overhead rate, markup or margin — belongs in Ettex Sheets, and the resulting prices go out through Ettex Invoices with line items, quantities and rates.
The boundary: Ettex Books has no job costing. There is no per-project cost tracking, no time capture feeding into a job, no work-in-progress valuation and no margin report by customer or product. You build the cost model in a sheet from ledger exports. That is workable for a company quoting a few jobs a week; heavy job-costing needs software built around it.
Setting a price by calculating the fully loaded cost of delivering something and adding a margin or markup on top.
Markup is a percentage added to cost; margin is a percentage of the final price. A 25% markup produces a 20% margin — intending one and applying the other undercharges on every job.
Total annual overhead divided by the hours you actually sell in a year. Using calendar hours instead of sellable hours understates the rate substantially.
Yes, at what it would cost to replace you. Excluding it is the most common reason small jobs appear profitable and the business as a whole is not.
Whatever your business needs to make its target profit after all costs, adjusted for the risk of the work. A number borrowed from someone else's industry is not an answer.
When the customer's value from the work is much higher than your cost, or when the market price is set by factors unrelated to cost. Cost-plus protects the floor; it rarely finds the ceiling.
Cost plus pricing is only as honest as the cost. Include overhead and your own time, use sellable hours for the rate, know whether you mean markup or margin — then compare estimates to actuals until the model stops surprising you.
Financial statements only make sense as a set. The income statement explains a period, the balance sheet a moment, the cash flow statement the difference between them — and the difference is where most businesses get surprised.
An accounting T chart is the simplest tool in double-entry bookkeeping and the fastest way to see whether a transaction was recorded correctly. Software hides it, which is exactly why it is worth being able to draw one by hand.
Management reporting turns the accounts into something a decision can be made from. The difference between a useful pack and an ignored one is commentary, not charts.